I think it stalled on sentiment, driven by the RBA rapidly lifting interest rates seven times in a row, with the futures market and media predicting another 6 more rises over the following year (those rises never came of course).
this is a very important fact i think a lot of bears miss. people got all frightened and locked into 9% home loans around this time.
I am the love child of Tony Abbott and Pauline Hanson
But there clearly comes a point where slowing housing credit growth cannot continue to support robust growth in both prices and volumes. It looks fairly obvious that we reached that point.
As I said, if mortgage interest continues to fall, we may see a revival to some degree for some period of time.
Clearly, you're not trying to imply that housing credit growth and the fortunes of the housing market ar unrelated.
Clearly, you're not trying to imply that housing credit growth and the fortunes of the housing market ar unrelated.
They're definitely related. Since 2003 the slowdown in credit growth has reflected in both a slowdown in house price appreciation and a reduction in sales volumes.
Since 2003 house prices have simply risen in line with incomes, on lower sales volumes, and this hasn't required a rising housing credit growth rate.
I don't see why that can't continue. I think house prices can continue to rise in line with incomes, even if the housing credit growth rate remains around current levels.
They're definitely related. Since 2003 the slowdown in credit growth has reflected in both a slowdown in house price appreciation and a reduction in sales volumes.
Since 2003 house prices have simply risen in line with incomes, on lower sales volumes, and this hasn't required a rising housing credit growth rate.
I don't see why that can't continue. I think house prices can continue to rise in line with incomes, even if the housing credit growth rate remains around current levels.
this is a very important fact i think a lot of bears miss. people got all frightened and locked into 9% home loans around this time.
The bulk of the time the market has been stalled has been characterised by a trend of falling interest rates. The rise mostly pre-dated the stall and didn't rise to anywhere near the previous high anyway.
The fact that people initially plunged back into leveraging up in the wake of the GFC doesn't suggest a simple loss of confidence as the primary factor.
timmy
24 Sep 2012, 03:41 PM
this is a very important fact i think a lot of bears miss. people got all frightened and locked into 9% home loans around this time.
The 9% home loans were the peak just before the GFC though Timmy, not post GFC.
Actually, it's quite interesting that several years of strongly rising interest rates leading up to the GFC were accompanied by strongly rising house prices.
No apparent loss of confidence to bid up the price of real estate pre-GFC in a climate of rising interest rates, while post-GFC interest rates peaked a couple of hundred bp lower yet the market still stalled. They've been trending down since the end of 2010 and we're only just beginning o see what might be some measure of revival.
To be fair, the banks haven't completely moved in lock-step with the RBA which might have unsettled people a little.
But for mine, the evidence mostly points to the price being too high.
Actually, it's quite interesting that several years of strongly rising interest rates leading up to the GFC were accompanied by strongly rising house prices.
No apparent loss of confidence to bid up the price of real estate pre-GFC in a climate of rising interest rates
It was high interest rates, not the GFC, that killed the property market in 2008.
Interest rates rose very gradually from 2002 to 2008, although the frequency of the rate hikes did speed up in 2007-2008.
Finally, by 2008, when mortgage rates were approaching double digits, the property market started to fall.
But then the GFC hit, rates were slashed, and the property market took off again. The GFC was the best thing to happen to the Australian property market. Were it not for the GFC, interest rates would have kept rising beyond 2008. Inflation was at 5%, and the RBA was on a mission to keep raising rates until it got inflation under control. The RBA attack on inflation did kill the property in 2008 through high interest rates, and house prices would have fallen substantially had the GFC not arrived, allowing rates to be slashed.
Note that there is a lag of 6-9 months before rate cuts (or increases) start to have an impact on house prices...
Catweasel laugh. Is this a universal the law etched on stone it a discover in cave? This the really make a Glenn the Stephens a high priest of a Australia.
1. Not everyone 'knows' this, because it's not true.
House prices surge everytime the government comes into support the market with speculator grants. I think that everyone now accepts this evidence with the exception of a few die hard bulls. One moment you argue that government intervention must be taken into account then you deny it has a significant impact.
Quote:
2. The first home buyer boost was a factor, but a minor one. Most buyers were not even eligible for this grant.
Irrelevant. Prices are set at the margin.
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3. Interest rate cuts were the primary driver, and they affected everyone, not just the minority first home buyer sector.
The surge in prices is more closely correlated with the grants.
Quote:
Anyway, we've been through all this before, so I suppose we'll have to agree to disagree.
No problem - I can understand why you're reluctant to have facts introduced.
Quote:
Housing credit is still growing, however the rate of housing credit growth has been on a downward trend since 2003, but this hasn't stopped house prices from rising over the past decade. The evidence over the past decade suggests that a declining rate of housing credit growth doesn't necessarily prevent house prices from rising.
This is true, the correlation of property prices to credit growth is weak but the correlation of property prices to the acceleration in credit growth is strong and the last time I looked this wasn't favourable for the bulls.
No problem - I can understand why you're reluctant to have facts introduced.
You haven't introduced any facts, merely your opinion.
My opinion differs, and since we've discussed all this already, I don't think either of us are going to change our opinions, hence little point rehashing it.
It was high interest rates, not the GFC, that killed the property market in 2008.
Interest rates rose very gradually from 2002 to 2008, although the frequency of the rate hikes did speed up in 2007-2008.
Finally, by 2008, when mortgage rates were approaching double digits, the property market started to fall.
But then the GFC hit, rates were slashed, and the property market took off again. The GFC was the best thing to happen to the Australian property market. Were it not for the GFC, interest rates would have kept rising beyond 2008. Inflation was at 5%, and the RBA was on a mission to keep raising rates until it got inflation under control. The RBA attack on inflation did kill the property in 2008 through high interest rates, and house prices would have fallen substantially had the GFC not arrived, allowing rates to be slashed.
Note that there is a lag of 6-9 months before rate cuts (or increases) start to have an impact on house prices...
I wasn't blaming the GFC for the stalling of the property market, which as I have pointed out at MB some time ago and you have pointed out now, started to run into difficulty about a year before the GFC.
Affordability is in large part, a function of prices relative to the rate of interest - not merely of one or the other. Just as affordability can become strained at low prices with a high rate of interest, it can also be strained at a low rate of interest if the price is excessive. When prices and interest rates are rising together - as they were leading up to the GFC - something has to give.
As the chart you have posted shows, interest rates are currently as low as they have been in a long time (the GFC trough was an exceptional emergency situation) and have never again come close to the level at which the market began to struggle around 4 years ago, yet the market has spent near 2 years in the doldrums. What has exceeded it's pre-GFC peak is prices.
Prices are still excessive in my opinion, but with the rate of interest now as low as it has been in many years, the market appears to be showing tentative signs of stirring again.
The facts are that housing has become too expensive and a trend of ever-lower rates of interest is likely to be needed to support sustained growth YoY from now on.
How low is it possible for the rate of mortage interest to fall in order to keep supporting strong, sustained price growth? I don't know.......but I don't think it's wise to allow a situation to develop where large numbers of ordinary income earners owe perhaps three-quarters of a million to a million dollars.
But that's just my opinion - what will be, will be.
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